To gain an edge, this is what you need to know today.

Hopium Meeting Reality

Please click here for an enlarged chart of Hims & Hers Health Inc (HIMS).

Note the following:

• In many areas, hopium from President Trump is justified.  However, the momo crowd has taken it to an extreme.  As an example, to the best of our knowledge, President Trump has not made a vigorous public statement saying that he would allow copycat versions of weight loss drugs by changing the current law.  Yet, the momo crowd, with its absolute faith in President Trump, continued to buy HIMS stock believing President Trump would be their savior.
• This article is about the big picture, not an individual stock.  The chart of HIMS is being used to illustrate the point.  HIMS is a telehealth company that has grown rapidly by selling copycat weight loss drugs.  The law allows compounded versions when there is a shortage.
• The chart shows the momo crowd was aggressively running up HIMS stock when the FDA posted on its website that the Wegovy and Ozempic shortage had ended.  Wegovy and Ozempic are weight loss drugs from Novo Nordisk A/S (NVO).  Semaglutide is the active ingredient of these drugs.  HIMS has been selling a copycat version of semaglutide.
• It was well known that the Wegovy and Ozempic shortage was going to end in February.  Yet, the momo crowd continued to buy HIMS stock on the belief that President Trump would bar the FDA from enforcing the law.
• Previously, a shortage of Eli Lilly And Co (LLY) weight loss drug Zepbound with active ingredient tirzepatide had ended.  HIMS was involved in compounding tirzepatide.  At that time, HIMS stock was trading much lower than where it has been trading recently.  HIMS stock initially dropped, and the momo crowd aggressively bought the dip.  HIMS mainstay was semaglutide, and not tirzepatide.  The momo crowd continued to run up HIMS stock on hopium that by the time the Wegovy and Ozempic shortage ended, President Trump would be in office and would save them.
• The chart shows the drop in HIMS stock even though the FDA said it was not taking any action against compounders for violations.
• The chart shows another big drop on earnings after the market closed yesterday, even though earnings were good.  The reason the stock dropped is HIMS said it would stop selling the compounded version of semaglutide.
• Prudent investors should note the drop in HIMS stock in a short time from about $72 to $40.44 as of this writing in the premarket when unrealistic Trump hopium did not come through.  Many stocks have been run up on unrealistic Trump hopium.  Some stocks are beginning to see a selloff.  Examples include Palantir Technologies Inc (PLTR), MicroStrategy Inc (MSTR), Coinbase Global Inc (COIN), Robinhood Markets Inc (HOOD), Oklo Inc (OKLO), and Carvana Co (CVNA).
• In The Arora Report analysis, the stock market is beginning to realize that the momo crowd buying on President Trump hopium has been excessive.
• Adding to the stock market's anxiety this morning, the Trump administration is working on tougher restrictions of U.S. semiconductors.  The aim is for allies to apply the same pressure towards China.  Trump's team met with Dutch and Japanese counterparts regarding restricting ASML Holding NV (ASML) and Tokyo Electron ADR (TOELY) maintenance of semiconductor equipment in China.   Similar restrictions are in place for American chip companies, including Applied Materials Inc (AMAT) and Lam Research Corp (LRCX).
• Also adding to the anxiety are investors waking up to Taiwan's vulnerability.  Please see the section below.
• Consumer confidence was released at 10am ET and may be market moving.
• Nvidia (NVDA) will report earnings after the close tomorrow.  All eyes are on NVDA as these earnings may be a make or break moment for the stock market.

Chinese Ship Caught

Taiwan is very dependent on undersea cables for the internet and communications.  A Chinese ship has been caught cutting an undersea cable.  As we have previously shared, in the event of China invading Taiwan, the first action from China will likely be cutting undersea cables.

Magnificent Seven Money Flows

In the early trade, money flows are positive in NVIDIA Corp (NVDA). In the early trade, money flows are neutral in Apple Inc (AAPL), Amazon.com, Inc. (AMZN), and Meta Platforms Inc (META).

In the early trade, money flows are negative in Alphabet Inc Class C (GOOG), Microsoft Corp (MSFT), and Tesla Inc (TSLA).

In the early trade, money flows are neutral in SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust Series 1 (QQQ).

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust (GLD).  The most popular ETF for silver is iShares Silver Trust (SLV).  The most popular ETF for oil is United States Oil ETF (USO).

Bitcoin

Whales from Asia appear to be selling Bitcoin to mom and pop in the U.S.  Whales' selling is causing bitcoin to drop below $90,000.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  The proprietary protection band from The Arora Report is very popular.  The protection band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges.  The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive.  If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

A protection band of 0% would be very bullish and would indicate full investment with 0% in cash.  A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.  High beta stocks are the ones that move more than the market.

Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less.  Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.